Recent coverage of AI rapidly replacing people in their jobs might have us believing that catastrophic, economy-shattering change is not far away once AI takes hold, especially for professional work. One might wonder whether a 40% reduction in workforce in one fell swoop truly reflects an AI revolution, or other forces at play whose proximity to AI happens to be quite convenient. Anthropic’s recently released research on this topic offers a few key takeaways, the most interesting of which is the yawning gap between the ‘theoretical capability’ of AI in a given field and what is actually ‘observed’. There is quite a bit of observed progress for Computer and Math, but very little for Architecture and Engineering. We consider these two because of the contrast between ‘scientific’ and ‘applied’ capability, and this is important.
Focusing on the service provider industry, and MSPs in particular, the market thesis is that for small-to-mid-market MSPs, somewhere between 20 and 30% of what their teams do every day in managing customers’ IT assets could be replaced by AI and automation – importantly, with human guidance, guard rails and customer consent. The more menial, repetitive and process-oriented the task, the easier it is to automate; meanwhile, the humanly impossible task of finding patterns and suggesting solutions from huge streams of observed system behaviour is at an early, if very promising, stage. How much of this capability has actually been deployed varies widely. It’s a function of the capacity a given provider has to roll it out, and of customers’ appetite for having robots do the work they thought smart engineers were doing.
Service providers facing into the reality of an AI-powered future might consider their path through the lens of the seminal work by W. Chan Kim and Renée Mauborgne in their 2005 book, Blue Ocean Strategy. In essence, it describes two strategic theatres: a Red Ocean, where the market is considered finite and success must come at the cost of others; and a Blue Ocean, where competition is irrelevant because the market is new. While Red Ocean strategies consider how to compete in existing markets, Blue Ocean strategies figure out how to create and win uncontested ones.
Why is this important? Because MSPs can either focus AI- and automation-led transformation on delivering the same infrastructure-centric but commoditising services to their customers at a falling price, or they can transform into Strategic Technology Partners (STPs), developing and delivering services and outcomes customers don’t yet know they will need once AI takes hold.
A real-world example of this in the vendor sphere is the realisation that in an agentic AI world, managing the identity of those agents is as important as managing the identity of people. Identity governance platforms and processes built for an organisation with a few hundred identities, tied to individual and relatively static employees, now need to handle many thousands of ephemeral agents that still require authentication, authorisation and authority to complete their work.
Service providers that automate to dominate their Red Ocean, through aggressive cost reduction that makes what they deliver a nominal part of the IT business outcome, will win, provided they keep investing in the ever-increasing AI-led transformation of infrastructure management. An example is the unbeatable economic advantage hyperscalers hold over privately built and run clouds, where corporate-led on-premise deployments can’t match their feature parity and innovation momentum.
Service providers transforming into STPs need to move from horizontal, generic, infrastructure-oriented services such as networking, cloud, security and digital workplace, to vertically integrated offerings that solve real business problems for customers. That means deploying AI-developed software and automation that fundamentally changes business processes, but which integrates with existing systems, maintains security, availability and performance, and meets compliance needs.
Industry-experienced, customer-focused consultants who can quickly scope and drive the deployment of integrated solutions, while also drawing on the battle-hardened capabilities that form the building blocks of secure, dependable and scalable infrastructure, are becoming the in-demand engineers of tomorrow. Staying current with where AI and automation are heading matters, but what will shine is true business understanding within the verticals where an STP wants to create new markets: its Blue Ocean.
As service providers consider their future and reset their strategy around AI, they find themselves in the same place as many of their customers. Do we do what we’ve always done, better and for less, embracing the Red Ocean approach? Or do we change tack and deliver true and rising value to customers, accepting that this path is harder and riskier, but likely necessary in the Blue Ocean world the future of AI presents? It’s an exciting time to face these choices, and the would-be STPs who see what is up for grabs and set a new path will be tomorrow’s winners.
This article first appeared on LinkedIn on 10 March 2026.